Plunging euro carbon market `good news’ for Aust firms

Some traders believe the fall in the price of euro carbon permits makes it a great time to buy offsets.
Photo: Bloomberg

by
Jason Murphy

While some market watchers were predicting the collapse of European carbon markets, some traders believed the tumble in the price of permits was a great time to buy.

Carbon Farming & Trading Association Chairman
Michael Kiely
said the bottom of the market in Europe was good news for Australian companies.

“We have clients that are trying to go carbon neutral. After you’ve done all you can to reduce your footprint, you are then required to buy offsets. As there are very few Australian offsets that can be purchased, it means going overseas.

“When the price is that low, it’s a good idea to scoop up as many as you can," he said, but noted he had not made any trades on Wednesday.

He predicted Chinese entities would enter the European market and push up the price of carbon credits.

The price of carbon fell in Europe after the EU parliament voted to maintain a higher number of permits.

Such a move would mean “the market is essentially finished until further notice," according to one European analyst cited in reports before the vote.

Carbon Market Institute’s Peter Castellas also insisted that the crash was an opportunity.

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“It is critical they know, understand, follow and see what the implications are," he said.

Australians could buy European carbon permits while the price was low and use those permits in the future if they wanted to take that risk.

“It presents Australian entities with an opportunity to actually hedge some of their exposure under the carbon price mechanism. They can secure those at historically low prices right now and surrender them during the flexible price period of the mechanism [after 2015]."

Mr Castellas said EU carbon permits bought now would not be wasted if the Coalition follows through on its promise to get rid of the carbon tax.

“If companies actually make those purchases now and the scheme is repealed, there are options to sell those units back into the European market," he said.

The carbon market was evolving fast with bad news coming on as quick as good, he said.

“In the same week that there has been questions around the future of the emissions trading scheme in Europe, we have announcements that China will introduce emission trading pilot schemes in cities covering 100 million people," he said.

International Emissions Trading Association Australia and New Zealand representative Rob Fowler said the European market had a structural flaw.

“The number of units put into the market isn’t automatically adjusted for the level of economic activity which is happening in Europe. There’s lots of units in the market but power stations just aren’t cranking," he said.

Mr Fowler expressed fear the market would be depressed for some time. “Those prices don’t look to be rising any time soon," he said.

He remained optimistic about the continuation of a functioning market for carbon in the long-term.

The major reason Australian companies would not buy European permits was uncertainty about Australian policy, not uncertainty about European policy, he said.

“Liable entities have had the opportunity to buy European units at very low prices for a while now; take up of that opportunity is indicative of the policy uncertainty that remains in Australia.

“The fact that European prices have gone down even further, I’m not sure that is going to shift risk profiles very much. It might shift the economics a bit."